Willis Re Finds Chile Quake, Storm Losses ‘Little Impact’ on Re Pricing

July 1, 2010

A new report from Willis Re, the reinsurance broking arm of Willis Group Holdings, has concluded that “losses from the Chile earthquake and storms in Australia in the first quarter of 2010 have had little impact on pricing in the global reinsurance market, which continued to soften this renewal season. The exception was on Chilean-specific renewals, which have seen rate increases of between 40 and 70 percent. This assessment of the state of the marketplace comes from the latest renewals.”

The report, entitled “Running on Empty,” tracked June 1 and July 1 renewals. It found that, in Property Catastrophe lines, there have been “no general market moves to increase prices, despite the fact that the Chile earthquake and Australia storm catastrophe losses, together with some other minor catastrophe losses, are probably sufficient to erode the entire 2010 Catastrophe Excess of Loss premium base outside of the US.”

The report said that the global reinsurance market has experienced a “continued gradual decline in pricing, with only a handful of loss-driven classes and territories showing any pricing stability or upward pricing pressure. Barring any major loss event which removes a considerable portion of the excess capital, there is unlikely to be any rating upturn in the near future, according to the reinsurance broker.”

However, this situation could be altered by the almost universal predictions, specifically from the UK’s Met office, predicting an “exceptionally active” hurricane season from June to November in the Atlantic region

However the report, which tracks reinsurance rate movements across numerous territories and product classes, warned that a “storm of a different kind is brewing for reinsurers. A combination of excess capital, stable investment returns and limited growth prospects continues to obscure the potential impact that prolonged soft pricing could have on the global reinsurance market in the event of a major hurricane or a similar catastrophe.”

Willis Re’s CEO, Peter Hearn, commented: “There is a concern that the longer the wait for any upturn in the reinsurance market, the more abrupt it will be once it eventually arrives.”

Other renewal trends highlighted in the report are:
— Casualty pricing remains generally soft and rates have continued to decline, though with some territorial variability.
— Competition remains fierce, with substantial capacity chasing premium volume in many lines of business, but most particularly in areas of perceived diversifying risk, such as the Middle East.
— US property renewals performed as expected, with significant rate reductions, as high as 25 percent, being obtained in Florida.
— In recognition of excess capital, some companies are redistributing their capital through share buy backs and special dividends, but major M&A activity remains muted.
— Reinsurance capacity from Capital markets is gradually increasing, and the products being structured are increasingly attractive for issuers, both in terms of coverage and pricing.

The full report may be obtained at: http://www.willis.com/Documents/Publications/Industries/Reinsurance/Willis_Re_1st_View_July_Renewals_Report.pdf

Source: Willis Re

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